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When it comes to refinancing, is there such a thing as too much of a good thing?

by Garrett Brennan | Updated March 29th, 2016

Refinancing a mortgage the first time around is considered a good thing to do. But what about the second time? Or maybe even a third? With rates falling consistently since the mid-80's, long time homeowners - and even more recent buyers ‐ have had, and still have, many chances to refinance. And now, even if they think their current rate is decent, with refinance rates as low as they are ‐the lowest in YEARS ‐ it can be pretty tempting to consider refinancing again.

So, why don't they?

A number of reasons. First of all, human beings are not all that rational. In fact, they are prone to procrastination, mistrust and the ability (or the patience) to understand complex information. So there's that.

The National Bureau of Economic Research tell us in its paper 'Borrowers Forgo Billions through Failure to Refinance Mortgages':

"Households that fail to refinance when interest rates decline can lose out on tens of thousands of dollars in savings. For example, a household with a 30-year, fixed-rate mortgage of $200,000 at an interest rate of 6.5 percent that refinances when rates fall to 4.5 percent will save over $80,000 in interest payments over the life of the loan, even after accounting for typical refinancing costs. With long-term mortgage rates at roughly 3.35 percent, this same household would save roughly $130,000 over the life of the loan by refinancing. But in spite of these potential savings, many households do not refinance when interest rates decline." Resource: http://www.nber.org/digest/jan15/w20401.html

One hundred and thirty thousand dollars?? People play the lotto hoping to win a measly five grand. Who walks away from $130,000? Well, a lot of people, it seems.

Once a person grasps that there is, in fact, a lot of money they could be leaving on the table, what then? Are they really just 'too dumb' or 'too lazy'? Of course not. It's not that simple. Many people may think ‐ incorrectly, but not for good reason ‐ that there are just too many regulation hurdles to jump through or the rate they ultimately get won't amount to a hill of beans. Or - and here's the real kicker: they're just too busy to even think about it. A refinance is just not even on their radar.

Why a refinance should be on everyone's radar.

The bottom line: whether they simply want to save money or cash out, a refinance can put more money in a consumer's hard earned pockets, rather than lining the pockets of the banks. Most people are happy about that.

How many times can you refinance your home loan? Are there any downsides to refinancing frequently?

The decision to refinance—it's easier than most people think.

The first step.

The important goals for a refinance:

Get a better interest rate

Change the term (length) of your loan

Convert an adjustable-rate loan to a fixed-rate

Get a cash-out refinance (Borrow against the built-up value of a home to pay for remodeling or other needs)

The truth of the matter is that people can refinance as often, and as many times, as they want. There's no limit and no one should tell them otherwise. However ‐ and this is important - most lenders do look for a "seasoning" period between home loans — basically, they're looking for a certain time frame between appraisals. But, in most cases, this is only about 12 months, sometimes even less.

While it used to be that early pay off rules prevented frequent refinancing, today that's no longer the case. Recent regulations have strongly discouraged lenders from adding these early payoff penalties. In short, the downsides for most people are pretty minimal.

How to see what's possible.

The best place to start exploring is by looking up rates and figuring out how much money can be saved with a refinance. It's easy to shop and compare. The more lenders consumers compare, the more money they can save.